May 4, 1988
Most of the First District manufacturing and retail firms contacted are satisfied with their recent performance. Sales are generally up, inventories are satisfactory, and price increases have been modest. Most retailers report sales in March and April ahead of a year earlier and in line with plans. Planned spending on warehousing, new stores, and store remodeling is higher this year than last. Manufacturers sum up the first quarter of 1988 with a relieved "so far so good." With some exceptions, new orders and shipments have risen by double-digit percentages. While optimistic, manufacturers are watching carefully for any signs of deterioration later in the year.
Retail
First District retailers generally reported rising sales in recent weeks, but their experiences were quite varied. While one upscale merchant enjoyed a 20 percent sales increase in March, another reported a slight decline in revenues during the first quarter of 1988. Two chains -- both with locations concentrated in rural and suburban areas - reported a steady 10 percent advance over year-ago levels. But a third serving the same market saw its sales momentum decline as year-to-year increases fell from double digits in January to barely positive in March. Meanwhile, prices were stable to 3 percent above year-earlier levels.
Most retailers are pleased with their profit picture despite rising costs. A shortage of retail clerk and warehouse labor has resulted in higher compensation and turnover as well as suboptimal staffing levels. Rent, insurance, and other overhead costs are also rising. Gross profits generally expanded in line with sales, however, and net income grew.
A movement toward increased quality characterizes local retail markets. Both upscale merchants and discounters described changes intended to upgrade their merchandise mix, especially apparel.
Retailers are optimistic about future growth and are confidently proceeding with various capital spending initiatives. All are adding outlets, some are expanding or remodeling, and some are investing in more warehouse space and associated material handling and computerized inventory control equipment.
Manufacturing
Factory contacts report that shipments are 10 to 14 percent above year-ago levels in real terms, while new orders are running flat to plus 10 to 12 percent. Producers with customers in financial services, housing and the government sense some softening in those sectors and newspaper accounts suggest that computer sales are slower than expected. By contrast, retailers' purchases, which had been weak early in the year, were strong in March. Other areas of strength included commercial instruments, electrical cables and electronic components, particularly for the automotive market.
Inventories are generally termed satisfactory. While two respondents reported improvements over the fourth quarter, two others indicated that inventories are a bit too high.
Most First District manufacturers reported small increases in materials prices. Items singled out included paper, steel and imported woods. Postage costs were also mentioned as were shortages of DRAMs. Manufacturers' own prices were flat to up 4 percent, except for computer makers and government contractors whose prices are falling.
The employment picture is mixed. One firm mentioned employment gains of 10 percent. Another, active in government work, reported a significant decline. Elsewhere employment was flat to down slightly. Two recurring themes were the tight labor market in Massachusetts and Rhode Island and the impact of increased labor productivity in reducing employment needs.
A majority of First District respondents plan to increase capital spending from modestly to significantly above last year's level. In general these expenditures reflect replacement needs and a continuing emphasis on installing more efficient equipment. A couple of the firms plan some expansion - in the Southwest, Canada and abroad. Among those planning to reduce capital spending were some high tech firms; excess capacity was the reason given.
Most First District manufacturers are encouraged by the year's performance so far. They expect a "reasonable" year with revenues up 10 to 15 percent and earnings up even more, thanks to continuing efforts to cut costs. However, several contacts also mentioned that they will be watching very carefully for any signs of weakening later in the year.